AlterNet.org: John Dunbarhttps://www.alternet.org/authors/john-dunbar
enMeet Donors Trust: The Little-Known Group That Lets the Wealthy Secretively Fund Right-Wing Causeshttps://www.alternet.org/meet-donors-trust-little-known-group-lets-wealthy-secretively-fund-right-wing-causes
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<div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Since 1999, the nonprofit charity Donors Trust has handed out nearly $400 million in private donations to more than 1,000 right-wing and libertarian groups.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers -->
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<!--smart_paging_autop_filter--><p><em>Editor's note: The following is a transcript of a Democracy Now! segment on Donors Trust, a little known group funding the Right's agenda. </em></p><p>When it comes to the wealthy funders of right-wing causes, the big names are well known: billionaires like the industrialist Koch Brothers and the casino magnate Sheldon Adelson, super PACs like Americans for Prosperity and Karl Rove’s Crossroads GPS. Now, through them, hundreds of millions of dollars have poured into right-wing causes and candidates. But now it turns out this web of dark-money donations is even more secretive than we previously thought. That’s because the operations of a largely unknown group have now come to light. They’re called Donors Trust, a nonprofit charity based in Virginia.</p><p>Since 1999, Donors Trust has handed out nearly $400 million in private donations to more than 1,000 right-wing and libertarian groups. The fact Donors Trust has been able to quietly do so appears to explain why it exists: Wealthy donors can back the right-wing causes they want without attracting public scrutiny. Donors Trust is classified as a "donor-advised" fund under U.S. tax law, meaning its funders don’t have direct say in where their money goes. That in turn allows them to remain largely anonymous.</p><p><strong>AMY GOODMAN:</strong> But the most detailed accounting to date shows Donors Trust funds a wish list of right-wing causes, prompting Mother Jones magazine to label it, quote, "the dark-money ATM of the right." Donors Trust recipients include the American Legislative Exchange Council, or ALEC, a mechanism for corporate interests to help write state laws; the Franklin Center for Government and Public Integrity, a media outlet that unabashedly promotes right-wing causes; and the State Policy Network, a number of right-wing think tanks that push so-called "free-market" policies.</p><p>But the major focus of Donors Trust appears to be funding the denial of global warming. More than a third of Donors Trust donations—at least $146 million—has gone to think tanks and other groups that challenge the science of climate change. Later in the broadcast, we’ll take a closer look at that funding of climate change denial, but first we turn to an overview of Donors Trust and look at why it’s been able to evade public scrutiny until now.</p><p>Joining us from Washington, D.C., is John Dunbar, politics editor at the Center for Public Integrity, worked on the group’s months-long investigation into Donor’s Trust. We did ask Donors Trust to join us, but they declined our request.</p><p>John Dunbar, lay out just what Donors Trust is.</p><p><strong>JOHN DUNBAR:</strong> Well, they’re essentially a pass through. What they do is, is they act as a kind of a middleman between what are very large, well-known private foundations created by—mostly by corporate executives, like the Kochs, for example, and they direct the money of those contributions to a very large network of right-leaning, free-market think tanks across the country, including those that you’ve named. By doing—by running it through the middleman, it essentially obscures the identity of the original donors, of the folks who have provided the funds themselves. And the organization itself actually makes that clear on its own website, essentially saying people who give money to the organization can avoid being identified or being connected with potentially controversial issues.</p><p><strong>AARON MATÉ: </strong>And John Dunbar, so the figure is $400 million since 1999. Why is it that all this is just coming to light now?</p><p><strong>JOHN DUNBAR:</strong> Well, we kind of stumbled onto it, to be honest with you. We’ve been, at the Center for Public Integrity—that’s <a href="http://www.publicintegrity.org/">publicintegrity.org</a> if you’d like to read our full <a href="http://www.publicintegrity.org/2013/02/14/12181/donors-use-charity-push-free-market-policies-states">report</a> on it—we were looking at activities at the state level, and we were noticing a certain continuity. There was a certain sameness to what was going on in various states on these issues. And we have been looking at the American Legislative Exchange Council for quite some time, and we were looking for how these organizations were funded. And this Donors Trust organization kept popping up, and it seemed to be such an amorphously named organization. We couldn’t really figure out where it was. So we got to wondering, "Well, who’s funding Donors Trust?" And then we backed it up a step, and then we started looking at some of the more better-known right-wing, free-market foundations, particularly those run by the Koch brothers—the Searle Freedom Trust, for example, is another one; the Bradley Foundation—these are all very well-known right-leaning foundations—and found that an enormous amount of the funds that came into Donors Trust came from those—from those organizations.</p><p><strong>AMY GOODMAN:</strong> John Dunbar, in your report, you speak with the Donors Trust president and CEO, Whitney Ball. She says much of the group’s focus is on the state level because of, quote, "gridlock" at the federal level of government means donors see, quote, "a better opportunity to make a difference in the states." Ball also sits on the board of the State Policy Network. Can you talk about this focus on activity at the state level?</p><p><strong>JOHN DUNBAR:</strong> Yeah, I think that—I don’t think anybody would argue with her point that it’s hard to get anything done in Washington these days. They have been a lot more successful at the state level. And I think that in Washington we have a tendency to sort of get tunnel vision: We don’t think that anything that happens outside of Washington really matters, when in fact the laws that are passed in the states are extremely important. Some of the focus of the Donors Trust recipients have been on specific state issues that, you know, affect all of us. You know, some of their favorite issues are right-to-work laws in the states; climate issues; renewable energy, as you’ll hear from Suzanne and The Guardian, which has done such great work on that; and as well as, you know, tax issues, etc. People tend to look at states and what’s happening in a particular state in isolation; they don’t look around and see that the same thing seems to be happening in other states. And it’s—this is clearly a coordinated effort to create state-based think tanks. There’s 51 of them that they’ve funded all across the country to push legislative issues. And then they created their own media empire to support—they even support the ideas behind those issues.</p><p><strong>AARON MATÉ: </strong>Well, John Dunbar, if you could follow up on that, this media group, the Franklin Center for Government and Public Integrity. They receive 95 percent of their funding from the Donors Trust?</p><p><strong>JOHN DUNBAR:</strong> Right, and that was kind of shocking, actually. You know, we—that is a foundation-financed reporting organization. I have to say that the Center for Public Integrity is also a foundation-financed reporting organization, so—however, we do not get 95 percent of our funding from any individual donor. Franklin does. The difficulty with that is that, first of all, you have to wonder what—whether the reporting is going to be influenced by that single donor. Secondly, they are a (c)3, which is—which means donations to them are tax deductible, and they don’t pay taxes themselves. That’s a public trust, by the way. That’s—the Donors Trust is in the same position. If they were not a publicly financed nonprofit, they would lose their nonprofit status. By getting all of their money or most of their money through Donors Trust, they’re able to maintain their (c)3 status as a, quote, you know, "publicly financed charity," unquote. And if all that money came from one person, for example, they would lose that exemption, or they would be part of—they would have to be absorbed by whatever foundation it was that was funding them.</p><p><strong>AMY GOODMAN:</strong> John, in 2009, Republicans, bloggers, conservative think tanks began to cite a report that the Obama administration had pumped billions of stimulus funds into phantom congressional districts, suggesting money intended to create jobs and shore up the economy had been misused or lost. One of the key websites to report this was <a href="http://newmexico.watchdog.org/">newmexicowatchdog.org</a>, which is almost entirely funded by Donors Trust. The story was picked up by Fox News, like in this report from Stuart Varney.</p><blockquote><p><strong>STUART VARNEY</strong>: Take a look at this map, please. The government is claiming jobs created in nine Oklahoma congressional districts; problem: There’s only five. Jobs in eight districts of Iowa; big problem: There’s only five. Jobs in eight districts in Connecticut; again, there’s only five. Jobs in three congressional districts in the Virgin Islands; there is only one. And as you point out, Bill, Puerto Rico, the government claims 17,544 jobs created or saved in six congressional districts; there is only one congressional district in Puerto Rico.</p></blockquote><blockquote><p><strong>BILL HEMMER: </strong>I don’t know if we should be laughing or crying over this.</p></blockquote><blockquote><p><strong>STUART VARNEY:</strong> No.</p></blockquote><blockquote><p><strong>BILL HEMMER</strong>: I mean, Puerto Rico alone, 99th Congressional District, 98th Congressional District, a no-number congressional district.</p></blockquote><blockquote><p><strong>STUART VARNEY:</strong> Yes.</p></blockquote><blockquote><p><strong>BILL HEMMER:</strong> I mean, good lord!</p></blockquote><blockquote><p><strong>STUART VARNEY:</strong> Yes, yes, yes. Raise your eyebrows, please. Look, it’s very bad, very unreliable statistics, and it really undermines all of these claims, these gross claims of job creation from stimulus.</p></blockquote><p><strong>AMY GOODMAN: </strong>That Fox News report was based on a report by newmexicowatchdog.org, one of the many so-called watchdog websites that are almost entirely funded by the Donors Trust. John Dunbar, your response?</p><p><strong>JOHN DUNBAR:</strong> Well, I think that the implication of that report was that there were millions and millions of dollars that were being misspent, when the reality was it was data errors. I don’t think anyone would defend the government’s ability to create accurate databases. They clearly didn’t do a very good job on that front, at least on the Recovery Act. However, the implication that all of this money was going into a black hole was actually nonsense. It was kind of a phantom issue about phantom districts, as the Associated Press had reported. A lot of the reporting by these different watchdog organizations that are funded by Franklin has been called into question, including by the Nieman Center at Harvard that’s called it a lack in context and in some cases actually distortions of facts.</p><p><strong>AMY GOODMAN:</strong> We’re going to break, John Dunbar, politics editor at the Center for Public Integrity, works on this months-long investigation into the Donors Trust called "Donors Use Charity to Push Free-Market Policies in States." When we come back, Suzanne Goldenberg will also join us, of The Guardian, who’s been investigating the funding of climate denial groups. This is Democracy Now! We’ll be back in a minute.</p> Tue, 19 Feb 2013 09:35:00 -0800Amy Goodman, Aaron Mate, John Dunbar, Democracy Now!797057 at https://www.alternet.orgNews & Politicsright-wingdonors trustThe Bad Guys of Subprime Lending Are Raking in Bailout Billionshttps://www.alternet.org/story/140130/the_bad_guys_of_subprime_lending_are_raking_in_bailout_billions
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<div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Naming the top 25 lenders and their Wall Street backers that juiced the subprime industry.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers -->
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<!--smart_paging_autop_filter--><p><em>The following report is part of a <a href="http://www.publicintegrity.org/investigations/economic_meltdown/">larger study by the Center for Public Integrity</a> on the roots of the financial meltdown. The list of the top 25 lenders responsible for nearly $1 trillion of subprime loans, according to a Center for Public Integrity analysis of 7.2 million “high interest” loans made from 2005 through 2007 is at the bottom of this article.<br /></em></p>
<p>The top subprime lenders whose loans are largely blamed for triggering the global economic meltdown were owned or bankrolled by banks now collecting billions of dollars in bailout money -- including several that have paid huge fines to settle predatory lending charges.</p>
<p>These big institutions were not only unwitting victims of an unforeseen financial collapse, as they have sometimes portrayed themselves, but enablers that bankrolled the type of lending that has threatened the financial system.</p>
<p>These are among the findings of a Center for Public Integrity analysis of government data on nearly 7.2 million "high-interest" or subprime loans made from 2005 through 2007, a period that marks the peak and collapse of the subprime boom. The computer-assisted analysis also reveals the top 25 originators of high-interest loans, accounting for nearly $1 trillion, or about 72 percent of such loans made during that period.</p>
<p>The Center found that U.S. and European investment banks invested enormous sums in subprime lending due to unceasing demand for high-yield, high-risk bonds backed by home mortgages. The banks made huge profits while their executives collected handsome bonuses until the bottom fell out of the real estate market.</p>
<p>Investment banks Lehman Brothers, Merrill Lynch, JPMorgan &amp; Co., and Citigroup Inc. both owned and financed subprime lenders. Others, like RBS Greenwich Capital Investments Corp. (part of the Royal Bank of Scotland), Swiss bank Credit Suisse First Boston, and Goldman Sachs &amp; Co., were major financial backers of subprime lenders.</p>
<p>According to the Center's analysis:</p>
<ul><li>At least 21 of the top 25 subprime lenders were financed by banks that <a href="http://www.financialstability.gov/impact/transactions.htm" target="new" title="received bailout money">received bailout money</a> -- through direct ownership, credit agreements, or huge purchases of loans for securitization.</li>
<li>Twenty of the top 25 subprime lenders have closed, stopped lending, or been sold to avoid bankruptcy. Most were not banks and were not permitted to collect deposits.</li>
<li>Eleven of the lenders on the list have made payments to settle claims of widespread lending abuses. Four of those have received bank bailout funds, including American International Group Inc. and Citigroup Inc.</li>
</ul><p>The Center also conducted a computer analysis of more than 350 million mortgage applications reported to the federal government between 1994 and 2007, and found that the amount of money spent by homeowners on their mortgages as a percentage of their income spiked sharply during the peak of the subprime boom.</p>
<h3>The Subprime Universe</h3>
<p><a href="http://www.publicintegrity.org/investigations/economic_meltdown/articles/entry/1341/" title="Subprime ">Subprime</a>does not mean "lower than prime." In fact, it's just the opposite. Subprime lenders charge rates that are higher than prime, the rate offered to a bank's most creditworthy customers -- sometimes much higher. Subprime borrowers are generally people with poor credit who may have a recent bankruptcy or foreclosure on their record, according to the Federal Reserve.</p>
<p>Each year, under the <a href="http://www.ffiec.gov/hmda/" target="new" title="Home Mortgage Disclosure Act">Home Mortgage Disclosure Act</a>, the federal government collects reams of data from lenders in an effort to determine whether they are adequately serving their communities and whether there is discrimination against minority borrowers. Some smaller lenders and some that do business in rural areas are not required to report. The government estimates the data account for about 80 percent of all home mortgages. In 2004, the Federal Reserve began requiring lenders to indicate when borrowers were being charged three percentage points or more above the rate of interest earned on U.S. Treasury bonds of a similar maturity.</p>
<p>The objective was to gather data encompassing "substantially all of the subprime mortgage market while generally avoiding coverage of prime loans," according to the Federal Reserve.</p>
<p>The Center analyzed these loans from 2005 through the end of 2007 to come up with its top 25 list of high-interest lenders. (The 2004 data were excluded due to poor compliance and other factors.) The market for these loans, driven by Wall Street investors, grew through the early 2000s, peaked in 2005, and crashed in 2007. The top 25 subprime lenders represent nearly 5 million loans.</p>
<p>There are multiple definitions of what constitutes a subprime loan. For the Center's criteria and to learn how the list was created, please see our <a href="http://www.publicintegrity.org/investigations/economic_meltdown/about_this_project/methodology/" title="methodology page">methodology page</a>.</p>
<p>Most of the top subprime lenders were high-volume, "non-bank" retail lenders that advertised heavily, generated huge profits, and flamed out when Wall Street benefactors yanked their funding. Nine of the top 10 lenders were based in California -- seven were located in either Los Angeles or Orange counties. At least eight of the top 10 were backed at least in part by banks that have received bank bailout money.</p>
<p><span class="image alignLeft" style="width: 250px;">Countrywide Financial Corp., which made at least $97.2 billion worth of loans from 2005 through the end of 2007, ranked No. 1 among subprime lenders nationally. The company was purchased by Bank of America last year.</span> No. 1 was Calabasas, California-based Countrywide Financial Corp., with at least $97.2 billion worth of loans from 2005 through the end of 2007. Countrywide was bought by Bank of America last year, saving it from probable bankruptcy. Second was Ameriquest Mortgage Co. of Orange, California, now defunct, which originated at least $80.6 billion worth of loans. Third was now-bankrupt New Century Financial Corp. of Irvine, California, with more than $75.9 billion in loans.</p>
<h3>Non-Bank Lenders Dominate</h3>
<p>Independent mortgage companies like Ameriquest and New Century were among the most prolific subprime lenders. Since they were not banks, they could not accept deposits, which limited their access to funds. At least 169 independent mortgage companies that reported lending data in 2006 ceased operations in 2007, <a href="http://www.federalreserve.gov/pubs/bulletin/2008/pdf/hmda07final.pdf" target="new" title="according to the Federal Reserve">according to the Federal Reserve</a>.</p>
<p>Some of the nation's largest banks have subprime lending units, including Wells Fargo &amp; Co., which ranked No. 8, JPMorgan Chase &amp; Co. at No. 12, and Citigroup Inc. at No. 15. The big banks' mortgage business was less reliant on subprime lending than that of the non-bank lenders. But most of the big investment banks also purchased subprime loans made by other lenders and sold them as securities.</p>
<p>Several other lenders among the Top 25 were subsidiaries of Wall Street banks or hedge funds. Encore Credit Corp. (No. 17), for example, was a subsidiary of Bear Stearns, and BNC Mortgage Inc. was part of Lehman Brothers (No. 11).</p>
<p>The lending totals in the survey include subsidiaries owned by the parent companies. British bank HSBC Holdings plc (No. 9) owned American subsidiary HSBC Finance Corp., which in turn owned subprime lender Decision One and also operated under the names Beneficial and HLC.</p>
<p>Two of the top subprime lenders were seized by the government. IndyMac Bank (No. 14) and Washington Mutual (owner of Long Beach Mortgage Co., No. 5) were each taken over by federal banking regulators after big losses on their portfolios of subprime loans.</p>
<p>American International Group (AIG), better known for insurance and complex trades in financial derivatives, made the list at No. 18, thanks to subsidiaries like American General Finance Inc., MorEquity, and Wilmington Finance Inc.</p>
<p>The five banks on the list that are still lending are Wells Fargo, JPMorgan Chase, GMAC LLC, Citigroup, and AIG. All have received billions from the government's bank bailout programs.</p>
<h3>Bailout Recipients</h3>
<p><span class="image alignRight" style="width: 250px;">President George W. Bush signs the Emergency Economic Stabilization Act of 2008 in the Oval Office. <i>(White House/Eric Draper)</i></span>On Oct. 3, 2008, former President Bush signed the $700 billion <a href="http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&amp;docid=f:h1424enr.txt.pdf" target="new" title="new">Emergency Economic Stabilization Act of 2008</a> into law. The legislation created the "Troubled Asset Relief Program" -- or TARP, as it is known -- to buy up mortgage-backed securities and hold them, ideally, until they recovered some of their value and could be auctioned. By removing the so-called "toxic" assets from the banks' balance sheets, it was hoped they would begin lending again. The administration later changed direction and opted instead to buy shares of stock from the banks.</p>
<p>In addition to the $700 billion bailout, the Federal Reserve began committing hundreds of billions of dollars to guarantee against losses on failing mortgage assets of AIG, Citigroup, and Bank of America.</p>
<p>Among the lenders on the Center top 25 list, seven have received government assistance. Citigroup has collected $25 billion through the TARP program, $20 billion through the Treasury Department's "targeted investment program," and a $5 billion Treasury backstop on asset losses. It has also been guaranteed protection from losses on $306 billion in assets. Wells Fargo has collected $25 billion in TARP funds, and Bank of America, which bought Countrywide and Merrill Lynch before their imminent collapse, received another $45 billion in TARP money. Also on the list: JPMorgan Chase (owner of Chase Home Mortgage), Regions Financial Corp. (former owner of EquiFirst), GMAC/Cerberus Capital Management, and Capital One Financial Corp. (former owner of GreenPoint Mortgage). And the bailout of insurance giant AIG may go as high as $187 billion and includes a combination of loans, direct investment by the government, and purchases of shaky assets.</p>
<p>Center researchers attempted to reach every CEO and corporate owner on its list of the top 25 lenders with mixed success.</p>
<p>A call and e-mail to Bank of America were not returned. A Wells Fargo spokesman said the bank carefully reviews a borrower's ability to pay. "That's why 93 out of every 100 of our mortgage customers were current on their payments at the end of 2008," the bank's Kevin Waetke wrote in an e-mail.</p>
<p>Capital One spokeswoman Tatiana Stead responded that GreenPoint's loans were considered Alt-A, which generally do not require documentation of income but whose borrowers have good credit. Such loans are not considered subprime, she said, and added that the bank closed GreenPoint shortly after it was acquired.</p>
<p>Since the confusion and panic of 2008 has receded, angry taxpayers have been looking for someone to blame for the mess. Subprime lenders that originated loans they knew were likely to fail are <a href="http://www.publicintegrity.org/investigations/economic_meltdown/articles/entry/1306/" title="widely cited">widely cited</a> as a good place to start. But the subprime lenders could never have done so much damage were it not for their underwriters -- those giant investment banks in the U.S., Germany, Switzerland, and England.</p>
<h3>Wall Street Cash Pours In</h3>
<p>During the boom years, investment banks provided a staggering amount of cash to subprime lenders so they could make loans.</p>
<p>Between 2000 and 2007, backers of subprime mortgage-backed securities -- primarily Wall Street and European investment banks -- underwrote $2.1 trillion worth of business, according to data from trade ublication <i>Inside Mortgage Finance</i>. The top underwriters in the peak years of 2005 and 2006 were Lehman Brothers at $106 billion; RBS Greenwich Capital Investments Corp., at $99 billion; and Countrywide Securities Corp., a subsidiary of the lender, at $74.5 billion. Also among the top underwriters: Morgan Stanley, Merrill Lynch, Bear Stearns, and Goldman Sachs.</p>
<p>When New Century filed for bankruptcy, it listed Goldman Sachs Mortgage Co. as one of the 50 largest unsecured creditors. Other New Century creditors include Bank of America, Morgan Stanley, Citigroup, Barclays, and Swiss bank UBS.</p>
<p>New Century earlier reported to its shareholders that it had lines of credit totaling $14.1 billion from those five banks, plus Bear Stearns, Credit Suisse First Boston, Deutsche Bank, and IXIS Real Estate Capital, a French banking firm (since taken over by a company called Natixis) that frequently worked with Morgan Stanley.</p>
<p>An <a href="http://www.consumerlaw.org/issues/financial_distress/content/lender_bankruptcy/NewCenturyFinancialCorp/petition2.pdf" target="new" title="investigative report">investigative report</a> prepared for the U.S. Trustee overseeing the bankruptcy case described a "brazen obsession with increasing loan originations, without due regard to the risks associated with that business strategy" at New Century. It said the company made loans "in an aggressive manner that elevated the risks to dangerous and ultimately fatal levels."</p>
<p>In December 2006, Citigroup pooled $492 million-worth of mortgages to sell to investors as securities, one of several major offerings the bank had packaged for Wall Street. Sixty-three percent of the mortgages were originated by New Century, <a href="http://www.sec.gov/Archives/edgar/data/1382887/000088237706004286/d601900_424b5.htm" target="new" title="according to the lengthy prospectus">according to the lengthy prospectus</a>. Eighty-one percent of the loans were adjustable rate mortgages.</p>
<p>Despite their massive investment in subprime loans, some of the nation's most powerful bankers continue to deflect responsibility.</p>
<p>"Demonizing the bankers as if they and they alone created the financial meltdown is both inaccurate and short-sighted," Citigroup chairman Richard Parsons told reporters recently. "Everybody participated in pumping up this balloon and now that the balloon has deflated, everybody in reality has some part in the blame."</p>
<p>A lawyer for former New Century CEO Robert K. Cole said he would have no comment.</p>
<p>Attorney Bert H. Deixler, who represents another former New Century CEO, Brad Morrice, was reached by e-mail. He was asked to comment on New Century's ranking as well as the contention that subprime loans originated by banks like New Century led to the collapse of the financial industry. Deixler described the Center's conclusions as "ludicrous." Several calls and e-mails asking him to elaborate were not returned.</p>
<p>Ameriquest, according to Center research of prospectuses, had relationships with virtually every major Wall Street investment bank. The lender sold billions of dollars in loans to Lehman Brothers, Bear Stearns, Goldman Sachs, Citigroup and Merrill Lynch. Some of its other financial supporters included Morgan Stanley, JPMorgan Chase, Deutsche Bank, UBS Securities, RBS Greenwich Capital, Credit Suisse First Boston, and Bank of America.</p>
<p>Countrywide, in addition to capital from shareholders, also had credit agreements with Bank of America, JP Morgan Chase, Citicorp USA (part of Citigroup), Royal Bank of Canada, Barclays, and Deutsche Bank.</p>
<p>Some investment banks owned subprime lenders. Merrill Lynch bought First Franklin Corp. (No. 4 on the Center list) in late December 2006 for $1.3 billion -- just before the bottom fell out of the market. Bear Stearns bought Encore Credit Corp. in February 2007.</p>
<p>The British banking giant HSBC got into the U.S. mortgage business in a big way when it bought Household International in 2003. It also purchased Arizona-based DecisionOne Mortgage, and operated under the Beneficial and HLC brands. An HSBC spokeswoman said HSBC Finance was primarily a portfolio lender, meaning it did not sell mortgages to third parties. HSBC, however, did package loans from its subprime subsidiaries into securities, according to SEC filings.</p>
<p>Lehman Brothers, now bankrupt, ranked No. 11 on the subprime list. The bank was a pioneer of sorts in investing in subprime lending. It owned several subprime lenders, including BNC Mortgage, Finance America, and Aurora Loan Services LLC.</p>
<p>Even banks that managed to dodge much of the carnage created by the subprime meltdown -- like Goldman Sachs -- were invested in the subprime mortgage business. Goldman in May 2005 <a href="http://www.sec.gov/Archives/edgar/data/807641/000093041305003543/c37341_424b5.txt" target="new" title="submitted a prospectus">submitted a prospectus</a> so that it could sell more than $425 million in securities known as "mortgage pass-through certificates."</p>
<p>Those securities were sold from an underlying pool of 9,388 second-lien loans that Goldman Sachs bought from Long Beach Mortgage Co., a company that ranks No. 5 on the Center's list of the top 25 subprime lenders. Long Beach was a subsidiary of Washington Mutual, which collapsed in 2008 thanks largely to losses in the subprime mortgage market. It was the biggest bank failure in U.S. history.</p>
<p>Included in the prospectus for those Goldman Sachs securities was a boiler-plate warning to investors considering buying subprime mortgages. It says the borrowers, "for one reason or another, are not able, or do not wish, to obtain financing from traditional sources" and that the loans "may be considered to be of a riskier nature than mortgage loans made by traditional sources of financing." Goldman eventually received $10 billion from the government TARP program, a sum the bank says it would like to pay back as soon as possible.</p>
<p>Goldman has been more conciliatory than some banks as far as accepting responsibility for the economic collapse. "Much of the past year has been deeply humbling for our industry," bank spokesman Michael DuVally wrote the Center. "As an industry, we collectively neglected to raise enough questions about whether some of the trends and practices that became commonplace really served the public's long-term interest."</p>
<p>Morgan Stanley owned a subprime mortgage company, but its volume wasn't high enough to make the Center's top 25. The investment bank, which has also received a $10 billion TARP investment, was far more active as an underwriter. It backed $74.3 billion of subprime loans during the peak years of 2005 and 2006, according to <i>Inside Mortgage Finance</i>, ranking it fourth for that period.</p>
<p>In 2006, Morgan and French banking firm IXIS Real Estate Capital Inc. (now part of Natixis) hoped to sell $1.3 billion in subprime mortgage-backed securities to investors, <a href="http://www.sec.gov/Archives/edgar/data/1030442/000091412106003609/ms6263814-424b5.txt" target="new" title="according to a prospectus">according to a prospectus</a>. It included 6,755 loans originated by 20 different lenders, including First NLC Financial Services LLC, Accredited Home Lenders and Countrywide.</p>
<p>In addition to Wall Street, the Federal National Mortgage Corporation (Fannie Mae) and the Federal Home Mortgage Corporation (Freddie Mac) also fed the subprime monster. Fannie and Freddie were created by the government to promote home ownership by buying mortgages from lenders and selling them to investors, thus freeing up cash for banks to make more loans.</p>
<p>With investment banks buying more and more loans themselves each year, Freddie and Fannie began buying a huge volume of mortgage-backed securities from Wall Street as a means to foster affordable housing goals.</p>
<p>As of the end of February 2009, Fannie and Freddie held a combined $292.1 billion in private mortgage-backed securities in their portfolios, according to monthly statements from both companies. On September 7, 2008, the government took control of the two entities.</p>
<h3>Abusive Lending</h3>
<p>The subprime lending business has had its share of public relations problems. Subprime lenders say they serve an important function -- offering credit to people who have been snubbed by traditional mortgage lenders. But regulators and consumer advocates say some are "<a href="http://www.publicintegrity.org/investigations/economic_meltdown/articles/entry/1341/" title="predatory">predatory</a>" lenders who take advantage of people with little knowledge of how the financial system works and few options when it comes to borrowing.</p>
<p>Indeed, subprime lenders have paid billions to settle charges of abusive lending practices. At least 11 of the lenders on the Center's list have paid significant sums to settle allegations of abusive or predatory lending practices.</p>
<p>Two of the largest settlements ever reached for lending problems were with AIG and Citigroup, two financial institutions that have received billions in federal aid. Citigroup has a history of subprime lending, dating back to its purchase of Associates First Capital Corp. in 2000. Citigroup at the time was building a global banking empire thanks to its success in convincing the government to deregulate the financial services industry the year before.</p>
<p>Associates had been criticized by some as a predatory lender, and in 2002, Citigroup paid a price for it. The bank agreed to pay $215 million to resolve Federal Trade Commission charges that Associates had engaged in "systematic and widespread deceptive and abusive lending practices."</p>
<p>In 2004, the bank was hit again, this time by the Federal Reserve. The Fed levied a $70 million civil penalty against CitiFinancial, Citigroup's subprime lending unit, for abuses during 2000 through 2002.</p>
<p>A Citigroup spokesman said the bank does not sell or securitize its loans. It does a small portion of adjustable rate mortgages, but does not offer "teaser rates" that so often get borrowers in trouble. Citigroup has caught heat from other big banks for supporting a bill, backed by consumer advocates, that would give judges more leeway in reworking mortgage loans of people in bankruptcy. The bill died in the Senate on April 30.</p>
<p>AIG settled claims of abusive lending practices in 2007. AIG subsidiary Wilmington Finance Inc. agreed to pay approximately $128 million in restitution after the Office of Thrift Supervision found the lender had failed to consider the creditworthiness of borrowers and charged large broker and lender fees. AIG also agreed to donate $15 million to "financial literacy and credit counseling."</p>
<p>The company did not respond to a Center request for comment.</p>
<p>The British bank HSBC got into the subprime business in the United States with the purchase of Household Finance in 2003. Prior to the purchase, Household paid a $484 million settlement encompassing customers in all 50 states for unfair and deceptive lending practices.</p>
<p>Ameriquest was the subject of at least four settlements involving predatory lending since 1996, including charges of excessive fees and misleading poor and minority borrowers. In 2006, Ameriquest and its holding company, ACC Capital Holdings Corp., agreed to a $325 million settlement with the District of Columbia and 49 states over allegations that the company misled borrowers, falsified documents, and pressured appraisers to inflate home values.</p>
<p>Countrywide, No. 1 on the Center's list, signed off in 2008 on the mother of all predatory lending settlements. After being sued by 11 states, the company agreed to provide more than $8.6 billion of home loan and foreclosure relief.</p>
<p>The Center contacted an attorney for former Countrywide CEO Angelo Mozilo, but did not receive a response.</p>
<h3>Deeper and Deeper in Debt</h3>
<p>There's no question it has become easier over the last few decades to buy a home. Keeping it, however, is a different matter. One of the key measures of whether borrowers can afford a home or not is to compare their income to their loan amount. In its analysis of the lending industry, the Center tracked the loan-to-income ratio of borrowers between 1994 and 2007. The Center did a computer analysis of more than 350 million mortgage applications reported to the federal government during this time.</p>
<p>In 1994, the median loan after adjusting for inflation was $120,000 -- meaning half of loans approved were greater than that amount and half were less. The median income of borrowers was $73,000. That's a loan-to-income ratio of 1.65. So borrowers were taking out loans that amounted to 165 percent of their salary.</p>
<p>The ratio remained relatively steady through the rest of the 1990s, but by 2000, it began to shoot upward. By 2005, the peak of the subprime lending boom, the median loan grew to $183,000 while borrowers' median income remained roughly the same. That amounts to a loan-to-income ratio of 2.46. That meant the typical loan amounted to 246 percent of annual income.</p>
<p>Borrowers, in other words, were spending a much higher percentage of their income on housing during the subprime lending boom. Many of the lenders coaxed them along by lowering lending standards, failing to require documentation of income on loans, and providing adjustable rate loans with low two-year teaser rates that reset to much higher levels. Ultimately, that fed a wave of foreclosures, leading to trouble for borrowers, lenders, and eventually taxpayers -- lots of it. And digging out will be no easy task.</p>
<p><em>These top 25 lenders were responsible for nearly $1 trillion of subprime loans, according to a Center for Public Integrity analysis of 7.2 million “high interest” loans made from 2005 through 2007. Together, the companies account for about 72 percent of high-priced loans reported to the government at the peak of the subprime market. Securities created from subprime loans have been blamed for the economic collapse from which the world’s economies have yet to recover.</em></p>
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<p><img alt="" src="/images/managed/storyimage_picture14_1242777754.jpg" /><br /><a href="http://www.publicintegrity.org/investigations/economic_meltdown/assets/img/top25-listfull.jpg">Click here to view a larger image of the list.</a></p> <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers -->
<div class="field field-name-field-bio field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> <!--smart_paging_autop_filter-->Visit the <a href="http://www.publicintegrity.org/investigations/economic_meltdown/articles/entry/1286/">Center for Public Integrity</a>. </div></div></div>Tue, 19 May 2009 21:00:01 -0700John Dunbar, David Donald, The Center for Public Integrity660582 at https://www.alternet.orgEconomyEconomyeconomywall streetmortgagessubprime crisis